article 3 months old

Fortescue To Test Support

Technicals | Jul 02 2015

This story features FORTESCUE LIMITED. For more info SHARE ANALYSIS: FMG

Bottom Line 01/06/15

Daily Trend: Down
Weekly Trend: Neutral
Monthly Trend: Down
Support Levels: $2.01 / $1.75 / $1.69 / $1.16
Resistence Levels: $2.65 – $2.75 / $3.86 / $5.03

Technical Discussion

Fortescue Metals ((FMG))  is an Iron Ore producer and explorer operational in the Pilbara region of Western Australia. It is engaged in mining of iron ore from its Cloudbreak and Christmas Creek mine sites. Its Cloudbreak mine site is located in the Chichester Ranges in the Pilbara region of Western Australia which is 263 kilometres south of Port Headland and 150km north of Newman. Its Christmas Creek is the second mining operation, 50 km to the east of Cloudbreak. The Company has also designed and constructed rail and port facilities to support the development and sale of the Pilbara's stranded iron ore bodies. For the six months ending the 31st of December 2014 revenues decreased 17% to $4.86B. Net income decreased 81% to $331M. Revenues reveal that the average price per unit of iron ore decreased 47% to $66 per metric ton.  Broker/Analyst consensus is currently “Sell”.  The dividend yield is 10.5%.

Reasons to be a little optimistic:
→ US$2.3bn of debt has been refinanced at 9.75% with the first payment pushed out to 2019 from 2017.
→ The company could be profitable in FY16 or FY 17.
→ Net debt at the end is FY 14 was US$7.2bn which came in under estimates.

Technically the stock is trying hard to hold itself above water but global markets and sentiment have driven price back to the lower end of the recent range. In recent weeks many brokers have revised their views and forecasts for commodities and whilst base metals remain more attractive than the bulks, opinion is that any significant recovery won't be seen till next year. Add to that the currency weakness and China concerns and it's little wonder FMG can't find traction. In our last review we put forward a cautious stance highlighting the basing pattern that has been taking shape over the last 6-months. We're keen on these patterns as they build a strong platform to reverse longer term trends, however, not only can they can drag on for quite some time, they can also fail. FMG is still in a significant downtrend and remains below its longer term diagonal trend line and well below its 200-day moving average. We're going to need to see these challenged a little more convincingly before looking toward a trend reversal. More time needed.

Trading Strategy

The good news here for a bullish trader is that we've revisited the lower side of the range meaning support is close by. This offers a tight stop point for the contrarian view, specifically a low risk entry point with a reasonable reward should prices track back toward the upper end of the range. It would be an aggressive stance as the trend if firmly down and global market trends are also down. We're not going to make a formal recommendation, but an aggressive trader could buy right here with stops below $1.70 on a closing basis. Take profits between $2.50 to $2.70.
 

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

Risk Disclosure Statement

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For more info SHARE ANALYSIS: FMG - FORTESCUE LIMITED